The uniform UN Sales
Law, the CISG, was compiled and adopted in its
final form at the United Nations Conference in Vienna in 1980, but preliminary
work and forerunners had long been in existence reaching back to the 1930s and
to the first drafts drawn up by Ernst Rabel for UNIDROIT, the Institute for the
Unification of Private Law in Rome. Thus it is no surprise that the Convention,
like national codifications, begins to show symptoms of aging. These are partly
due to technical and economic developments which could not have been foreseen
at the time the Convention was drafted -- such as electronic commerce -- and
partly due to misjudgment of the practicality of certain provisions and their
consequences. In particular, the acceptability of certain provisions of the
CISG in countries with different basic structures of commercial law may have
been overestimated, so that perhaps the resistance in England to adoption of the
Convention, and the advice often given in practice to exclude the CISG's
application could have been (partly) induced by such misjudgments as to the
acceptability of certain solutions and provisions of the Convention.[1]
It is, however, certainly more difficult to implement corrections to or
amendments of an international Convention than it is for a national legislator
to reform national law since, at the international level, the cooperation of
all parties to a Convention -- i.e., all of the Contracting States and their
legislative organs -- is necessary. In the case of the CISG, such a process can
only be seen as hopeless when one considers the length and difficulty of its
labor pains. One should therefore be on the lookout for Convention-internal
provisions that allow for adaptation and further development of the CISG and
the construction of bridges to other legal systems -- such as the way in which,
in German and in Swiss law, certain general clauses have kept the enacted Codes
of these countries and their basically rigid texts flexible and thus have long
forestalled the need for intervention of the legislature. Further, the
legal-technical tools of broader interpretation of the text and of analogy have
made it possible to offset weaknesses and gaps in the respective Codes.

In the CISG it is, in
particular, the two paragraphs of Article 7 which provide the mechanism for
resolving interpretive issues and allowing further development of the
Convention. The distinction between the scope of paragraph (1) and the scope of
paragraph (2) is important in each case, but can also be unclear. For instance,
when dealing with electronic communication of legally relevant statements,
profound theoretical considerations can turn on whether, according to the
principles of Article 7(1), one attempts to base further development of the
Convention on an interpretation of the individual provisions on declarations
and their communication -- offer, acceptance, revocation, avoidance, reduction,
notice of defects, etc. -- or, alternatively, whether one seeks to form a
gap-filling uniform rule in terms of Article 7(2). But that is perhaps of
little interest in practice and, in my opinion, should therefore not be
overrated; also, the comprehension and application of the CISG elsewhere, particularly
in Anglo-Saxon legal circles, are less controlled by theory and methodology
than is the case with Civilians. In any event, it rather always depends on each
individual case. I therefore do not wish to provide abstract advice; I will
instead consider individual issues.

I. INTERPRETATION OF THE CONVENTION IN TERMS OF ARTICLE 7(1) AND DOCUMENTARY SALES CONTRACTS

1. DELIVERY BY MEANS OF DOCUMENTS

In critical analyses of the CISG in
Anglo-Saxon literature, it is often deplored that the Convention does not take
into account the peculiarities of commodity
trade and thereby, in particular, those of documentary sales of commodities,[2]
which, in the light of the significance of these forms of transactions -- "the volume of paper trading greatly exceeds
the volume of dealings in the underlying goods"[3]
-- is regarded as a major deficit of the CISG. In this connection, there is also
criticism that the regulations of the Convention are too lenient in cases of
breach, which "might not suit the harsher
environment of international commodity sales."[4]
They are (in particular) said to be unsuitable for losses in markets with
strongly fluctuating prices, which are completely different from losses caused
by defects in goods such as shoes or specially designed machines.[5] Finally, the Convention's regime on passing of risk is said to have an upsetting effect on the rules on risk contained in FOB and CIF contracts in the commodities trade.[6]

The thrust of these
critical opinions regarding the suitability of the CISG must come as a surprise
as, for Ernst Rabel, trade in commodities and the applicable forms and
contract-types such as CIF or FOB were always present in his preparation of the
foundations for the legal unification of the transnational sale of goods in his
magnum opus"Recht des Warenkaufs."[7][8] In
using the term "goods", Rabel relied on the English Sale of Goods Act and the
then-in-effect (U.S.) Uniform Sales Act;[9] the extension of the scope of application of the Uniform Sales Law to -- e.g. --
specially produced machinery was, on the other hand, more of a completion.[10]
Also, the experts of the Anglo-Saxon legal community from H.C. Gutteridge to Soia
Mentschikoff, Barry Nicholas, John
Honnold and Allan Farnsworth, who
had participated to a large extent in the unification of Sales Law up until and
during the Vienna Conference in 1980, could hardly have ignored these forms of
the international sale of goods and the peculiarities of their own legal
systems in this area; indeed, the report of the UNCITRAL Secretariat, drawn up
in preparation of the Vienna Conference, expressly states that documentary sales of goods shall be
covered by the Convention, "though in
some legal systems such sales may be characterized as sales of commercial
paper."[11]

Regarding any criticism
of the existence of discrepancy or even conflict between the CISG and
INCOTERMS, such criticism probably fails to take fully into account Article 6
and the established primacy of the agreement between the parties which is set
forth therein. Of course, clauses such as FOB or CIF have priority over the
provisions of the CISG -- in particular, with respect to the passing of risk.[12]
The particular risk of loss from extreme price fluctuations on the
international commodity markets is comparable [13]
and, even if the matter is not regarded as expressly settled by the provisions
of the Convention, it might be regulated by relevant clauses in the contract,
or adequately defined by interpretation of the contract pursuant to Article
8(2), (3). For example, it is to be understood that (delivery by) the handing
over of the documents by a certain deadline fixed by or determinable from the
contract would be "of the essence"
for the buyer.

In my opinion, the only
doubts that merit consideration are, that for international purchasers of
commodities very often it is not the goods as such, i.e., the actual raw
materials, etc. that are most relevant to the deal, but the documents embodying
the contract and/or resulting from the contract, the latter often being provided
by the first seller -- such as the producer [14]
-- so that -- according to the report of the UNCITRAL Secretariat quoted above --
in some legal systems this transaction is not regarded as a sale of goods, but
as a sale of documents. One must, in
this respect, differentiate -- at least in the Swiss and German legal systems -- between various legal forms:

First case

Firstly, the goods can
be sold as such and a surrogate for their delivery in the form of a document,
which embodies the rights to delivery of the goods, can be agreed upon.

Second case

Secondly, such a
document can itself be the object of a contract of sale. In other words,
instead of 100,000 barrels of crude oil of the kind West Texas Intermediate, documents -- whether in paper or electronic
form -- which entitle the rightful holder to demand delivery of that amount of
oil of a specified category, could be traded as such, in particular, therefore,
such documents as "Warenpapiere" in the sense of § 925 ZGB (Swiss Civil Code).[15]
And those documents are often traded onwards in string transactions, i.e., sold and transferred several times until
the end purchaser finally takes delivery of the physical goods. The obligations
of the seller and his liability for the performance of the contract are, in
such contracts, no longer primarily linked to the physical condition of the
goods -- in so far as the contract of sale does not contain additional specific
terms in this respect [16]
-- and their delivery, but also to the timely transfer of the documents and
their conformity with the stipulations of the seller's obligations in the
contract of sale. If the documents identify the goods to be delivered in
accordance with their designation and description in the contract of sale, then
the seller has complied, as he has provided the buyer with rights of access to
goods "of the quantity, quality and
description required by the contract" -- Article 35(1) -- and has therefore
performed in accordance with the terms of the contract. Discrepancies between
the physical condition of the goods and their description in the relevant
documents can lead to liability of the issuer of the documents obliged to hand
over the goods in accordance with the terms of the documents -- e.g., the
warehouse, the carrier, etc. -- but not the seller, in so far as the contract
does not contain any additional undertakings relating to the quality of the
physical goods,[17] or in
exceptional cases of fraud or other fraudulent conduct.

The documents which
enable such an "onward trading", can be variously regulated in the national
legal systems, and can grant the rightful holder rights of varying "strength".
So-called "Traditionspapiere" -- in
German and Swiss domestic law -- "represent" possession [18]
and their transfer in the form allowed under the relevant laws on property and
negotiable instruments effects a transfer of
possession and possibly ownership to their acquirer: their transfer is
the "delivery" which the seller has undertaken, and this can, of course, take
place repeatedly before the final customer himself demands handing over, i.e.,
the physical possession of the goods. Documents other than those papers also
allow onward trading without the intermediaries acquiring direct possession of
the goods, such as so-called delivery notes, i.e., orders to a warehouse in
which the seller of first instance has stored the goods and which has to hand
them over to the end buyer, who presents the note, on payment of the storage
costs, the purchase price, etc. Here too, the point is, notwithstanding all
legal-technical details of the law of these instruments to which the national
laws governing these papers applies, that ultimately "delivery" by means of the
transfer of vested rights to delivery contained in documents, perhaps even
resulting in the transfer of ownership in the physical goods, is achieved, even
when a layman is not aware that the document, be it a bill of lading, a
warehouse receipt, a delivery note, etc., in the first instance vests only the
rights to delivery of the goods and only in the end the commercial result of
the transaction -- or of a string of transactions -- will be the access to the
physical goods provided by these documents.

In the interpretation of
the CISG in accordance with the guidelines recited in Article 7(1) (more hereto
following), these trading forms, although they are effected by the transfer of
"rights" embodied in documents and
therefore presuppose corresponding obligations of the seller, are governed by
the provisions of the Convention -- see, in particular, Articles 30 and 34 --
even though the 1964 Hague Sales Convention (ULIS) was clearer in this respect,
in particular with regard to the legal consequences of breach of the relevant
seller's obligations, cf. Articles
18, 50, 51 ULIS.[19] In
particular, such trade forms and objects of sale are not excluded from the
scope of the CISG on the grounds of its Article 2(d).[20]
The critical reservations regarding the CISG that it primarily regulates "consignments of shoes ... or sales of
tractors" and, therefore, must be regarded as not suitable for the
customary document trading on the international commodity markets [21]
are, in my opinion, caused by a lack of familiarity with the Convention and the
possibilities which it allows for party autonomy in contracts. The same applies
to the numerous calls to consequently exclude the application of the Convention from the realm of commodity sales on the ground that the CISG is not suited to them. It must be freely admitted that German-language literature seldom devotes to documentary sales the detailed analysis this subject requires [22]
and limits itself in particular to the function of certain papers as a transfer
surrogate,[23] neglecting,
however, the repercussions of a documentary sale agreement on the obligations
of the seller.[24]

Third case

The third conceivable case
is questionable: Not (only) documents such as bills of ladings, warehouse
receipts, delivery notes, etc., and thereby rights of the holder of the
documents to the handing over of the goods, are traded, but sales contracts as
such, to be legally precise: the rights of
buyers under their sales contracts to have the goods delivered and
ownership transferred are the object of these sales.

Under the scrutiny of
the jurist, such a contract arguably involves the sale of rights, which are
actually excluded from the scope of the CISG.[25]
But are they really? In this respect, the Convention must be interpreted and,
in particular in respect of this constellation, i.e., the purchase of
contracts, the principles of interpretation contained in Article 7(1) are
significant.

2. SALES OF CONTRACTS AS SALES OF GOODS: ARTICLE 7(1)

Article 7(1) stipulates three directives
to interpretation. It does so in a standard formula which has since been
applied in many other Conventions on the Unification of Law.[26]

a)
Principle of interpretation: "international character" -- a
ban on recourse to domestic concepts; as an
example, "good faith and fair dealing" in German law

Proper interpretation of the
Convention should take into account "its
international character". This is what is meant by the so-called autonomous
interpretation, i.e., an understanding and interpretation of the Convention
which must detach itself from national preconceptions of the terms applied.[27]
Autonomous interpretation of the Convention is often proposed, but is at the
same time often neglected, as it is only natural that the reader, interpreter
or applier of the Convention brings his ingrained preconceptions of his own
laws to his interpretation. The requisite "international understanding" in
itself raises doubts whether the finely
drawn difference between the sale of "goods" as such and an obligation of
supply arising from this contract of sale, perhaps to transfer documented
rights to surrender possession, on the one hand, and the purchase of the rights
to delivery, i.e., a purchase of contracts, on the other hand -- a distinction
that might be extremely difficult to explain to a non-jurist who trades -- and
perhaps speculates -- on the commodities market. This is every reason for equal
treatment, i.e., for treating sales of contracts as sales of goods under the
Convention.

The second directive contained in Article
7(1), i.e., "to promote uniformity in [the] application
[of the Convention]" would be better met, if one were to apply the Convention to
all documentary sales independently of whether the contract documents to be
transfered embody sales contracts or vest rights to supply goods or to their
handing over. Besides, this interpretation guideline is an important anchor for
international case law as a source of law, even if a fully developed doctrine
of stare decisis is neither expected
nor desired. But the requisite consideration of decisions of courts in other
Contracting States (particularly where there is an established line of rulings)
by courts which are later faced with the same issue, and the development of a
technique of distinguishing, could
have its Convention internal basis in this interpretation directive.

c) Principle of interpretation: "observance of
good faith in international trade"

After all, as the third directive laid
down in Article 7(1), "to observe good
faith in international trade", no matter how unsure the meaning of "good
faith in international trade" may be,[28]
argues against interpreting the Convention in such a way that even though the
sale agreement for the transfer surrogates -- in the form of vested rights of surrender
against carriers or warehouse owners -- falls within the Convention's scope, the
purchase of a contract of sale and the established rights of delivery therein,
does not.

Certainly, the critics'
misgivings regarding the application of the CISG to the commodities trade are not based only on the herein-mentioned
juristic borderlines drawn between the purchase of goods and the purchase of
contractual rights, but also -- although without any real concrete substantiations
-- on the assertion that the regulation by the Convention of the rights and
obligations of the parties does not answer the necessities and practices of the
often speculative trading on the commodity markets. That assertion is disputed
and can be refuted by a precise analysis, yet the above mentioned reference
must suffice; that the supposed peculiarities of the trade in commodities can
(and are) met by corresponding contract forms must suffice for present
purposes. In as far as international usages already exist in the trade in
certain commodities, or where the parties have established suitable practices
between themselves, the respective issue-based rules derived from usages or
practices of the parties, in accordance with Articles 9(1) and (2), have
priority over the provisions of the CISG.

Gap-filling in accordance with Article
7(2) -- this provision, too, has become a standard formula in Conventions for
the Unification of Law -- allows the elimination of deficits in the provisions
for Convention internal issues -- matters
governed by this Convention -- through the development of uniform law rules
based on the general principles underlying the Convention; only when this
filling of gaps fails due to the lack of general principles -- or when the case
is concerned with matters which are either not the subject of sales law or have
been deliberately left unregulated by the authors of the Convention, such as
prescription or interest rates -- should recourse had via the PIL (Private
International Law = Conflict of Law) rules of the forum to non-uniform domestic
law.

As has been mentioned,
the borderline between gap-filling by expansive interpretation in accordance
with Article 7(1) or by the developing of uniform rules under Article 7(2) can
be blurred; in my opinion, a wider interpretation should be attempted first,
before new -- uniform law -- provisions are developed. There too, the demarcation
line between an analogy with which jurists from German and Swiss legal systems
are familiar, and the gap-filling procedure in terms of Article 7(2) is
sometimes described as difficult, and often as theoretical;[29]
an attempt is made to create order with the concepts "a principle, which is
only contained in one rule of the CISG:
then analogy -- a principle which underlies several rules: then gap-filling",[30] yet in that respect we are concerned with a theoretical-methodological problem,
which is not to be pursued in this paper.

2. GAPS AND PRINCIPLES

The first step in the gap-filling
procedure is the identification of an internal Convention gap which cannot be
closed by the liberal interpretation of a related provision. An abstract
listing of such gaps cannot be laid out here. The second step is to find a
general principle on which the Convention is based, i.e., an underlying basic
value of the Convention allowing the development of a new rule which is in
accordance with that value. Long lists of such principles are recited in the
commentaries,[31] yet the
usefulness of these lists is limited; in each case it is the actual issue and
the gap arising in respect thereof that are important. In that context, very
often, in the listing of principles and their application, the distinction
between legitimate internal gaps to be filled in the Convention and other
shortcomings to be negotiated in individual contracts is not always clearly
distinguishable. In particular, the assertion that "good faith" is one of the
basic principles on which the Convention is based, often leads, due to German
convictions and practices, but not in accordance with the intentions of the
CISG's drafters, in actual cases to erroneously basing contractual amendments,
which are seen to be desirable, on the principle of good faith.[32]

In an actual case -- the facts of
which are presented slightly modified here -- a German company had delivered
medical equipment to a Swiss company over a period of several years. This
equipment had been resold by the Swiss purchaser to hospitals and doctors'
practices. A corresponding framework contract -- supply and distribution
agreement -- had expired, which the parties had apparently not even noticed, but
the supply continued thereafter on the basis of oral orders. The legal basis
for the individual deliveries was the CISG. The issue in question was whether
the German seller was also responsible for and had to hold in store the
accessories -- belonging parts ("Zugehör", in the
terminology of the ZGB [the Swiss Civil Code]), e.g.,
the tool-kit of car, and of spare parts
possibly needed in the future. The CISG is silent on the question of
such additional obligations -- in the terminology of the Swiss and German legal
systems, "ancillary obligations" ("Nebenpflichten").
In particular, it does not contain any presumption corresponding with § 311c of
the BGB [the German Civil Code] that the seller of goods is also obliged to
supply any accessories -- or belonging parts in the sense of Article 644 of
the ZGB.[33] The gap in
the CISG is to be filled by a rule which is to be developed from a principle
which is to be drawn from various provisions of the CISG -- in particular, by
reference to Articles 30 and 34 dealing with documents concerning the goods
that are necessary for their usability, and also by reference to Article
35(2)(d), dealing with packaging obligations, and Article 35(a) and (b) in
respect of the features of the goods sold. The relevant principle provides that
the seller is not only obliged to deliver the "bare" goods, but also everything
which is a prerequisite for their agreed use by the buyer, i.e., concerning the
"conformity" of the goods with the contract. Accessories or "belonging parts"
belong thereto per definitionem.

However, in my opinion, spare parts and their supply is a
different matter altogether: a general, normative rule applicable to all
international sales contracts which holds that a seller must provide spare
parts -- and for how long? -- cannot be inferred from the provisions of the CISG.
In German law, this is occasionally accepted and a general reference is made to
§§ 242, 157 of the BGB [German Civil Code], which could be a temptation to
employ the asserted basic principle of good faith as a suitable gap-filling
under the CISG, too. In my opinion, this would go far beyond the mark of
finding a solution in individual cases. The basis for finding a solution in an
individual case can only be a -- possibly supplementary -- interpretation of the
actual contract, which was easily possible in my example by applying Article
9(1), as the supply of spare parts on request was an established practice in
terms of the old framework agreement continued by the parties even after its
expiry.

4. EXAMPLE TWO: BREACH OF SERVICE OBLIGATIONS COVERED BY THE CISG UNDER ITS ARTICLE 3(2)

The normative "gap-filling" by uniform
rules on additional obligations -- in contrast to contractual supplementary
extensions of the obligations of the parties by interpretation of their
communications under Article 8 -- is, however, only the first step. The next gap
appears when we consider the legal consequences of a breach of such additional
obligations. This gap is particularly wide in the case of additional service obligations,
which in the case of mixed contracts could fall within the scope of the CISG
if, in accordance with Article 3(2), these service obligations do not
constitute the preponderant part of the seller's obligations. Here is another
example which is based on a case decided by the German Federal Supreme Court
[BGH]:[34]
A German manufacturer sold a second hand machine to a Spanish client and had
undertaken to have this machine "run-in" by its own mechanic. The German
mechanic did not show up or was unsuccessful in getting the electronic control
system of the engine to function properly. What legal remedies were available
to the Spanish client?

a) Non-performance

Should the promised service not be
performed, the legal remedies of the buyer must be developed, in closing the
gap, on the basis of the legal remedies available in the case of non-delivery
of goods:

aa) Right to require performance -- subject to Article 28

One might, firstly, consider a
right to demand specific performance, but its judicial enforcement would be
uncertain, not only because of the limited possibilities of execution -- which
can also vary from country to country -- but also on account of Article 28. In
any event, an enforcement of that right is apt to be too time consuming.

bb) Damages

A claim for damages under
Article 74 -- which was also raised in the Federal Supreme Court case mentioned
-- i.e., as a claim for damages without avoiding the contract, ought not to
provide any difficulties. Whether the seller could and would be excused, if,
e.g., the mechanic had died suddenly or was denied entry into Spain on account
of false information about terrorist activities, is a factual issue not to be explored
here.

cc) Avoidance of the contract? Article 49(1)(a) or (b) -- additional period of time -- in connection with Article 51

The possibility of avoidance
(cancellation) of the contract is difficult. Firstly, the basic principle of
Article 51(1) and Article 73(1) is to be heeded, whereby in the case of
divisible performances, avoidance is to be limited to the respective
performances affected, should a fundamental breach insofar exist. This must
most certainly apply in the case of mixed contracts. Should the non-performance
or the non-timely performance of the services to be rendered in itself
constitute a fundamental breach -- such as when the installation was to be
completed by a "fixed" date -- the services part of the contract can be avoided:
the buyer is then free to purchase the services elsewhere and to claim the
(additional) expenses as damages in terms of Article 75. In applying the rules
on setting of an additional period of time for performance,[35]
in our case too, a gap-filling rule can be developed, based on the principle
valid for non-performance, non-payment and non-acceptance, whereby, after the
futile lapse of a new deadline, the services part of the contract can be
avoided.

It is more difficult to
avoid the entire contract. The seller may have lost interest in the machine
because of the delay in installation, but perhaps also for other reasons,
although the machine as such is in perfect order. Here the gap-filling rule to
be developed must consider the principle underlying Article 51(2) and Article
73(3), so that the provision of services must be so intertwined with the
delivery of the goods, that non-compliance with the services obligations
presents a fundamental breach of the entire contract -- in our case, e.g., if
the machine could not be used at all without the mechanic's services.

dd) Price reduction

In my opinion, price
reduction in terms of Article 50 should also be possible: The failure to
provide proper service is a reduced performance on the part of the seller and
equal to non-conforming delivery in terms of Article 35(1).

ee) Retention of the price

Important, but unregulated,
is the right of the purchaser to refuse performance himself, in part or as a
whole, in particular, payment of the purchase price. It ought to be developed
as a general right of retention; a separate viewpoint will be taken on this
below.

b) Malperformance of services

The legal consequences and remedies
are also unregulated in the case where the services due are not performed in
conformity with the terms of the contract, i.e., "malperformed". In the
development of gap-filling rules on the basis of the relevant provisions of the
CISG on conformity of the goods to the terms of the contract, there are three
questions which, in my opinion, must be answered:

aa) Duty to give notice?

Principally, legal remedies in
respect of non-conformity require timely notice,
Article 39(1), and the remedies lapse after two years after handing over of the
goods, if no notice thereof has been given by the buyer to the seller, Article
39(2). In my opinion, this applies in respect of claims for defective services,
too; the examination required under Article 38 also determines the commencement
of this reasonable period of time for notice. The buyer, therefore, has "to
examine the [services] or cause [the services] to be examined, within as short
a period as is practicable in the circumstances."

bb) Cure -- limits in terms of Article 46?

The rules to be developed
regarding the rights of the buyer to a cure, i.e., a subsequent performance
provide difficulties, since Article 46(2) and (3) provides for two forms of
cure in case of defects -- delivery of
substitute goods or repair -- which contain very different preconditions.
However, in respect of services, it is very difficult to draw the line between
a complete new service, as "substitute performance" in accordance with Article
46(2), and "repair", the choice of these remedies being allowed to the party
obliged to perform the services. However, this cannot mean that he can decide
on "substitute performance" -- which
equals delivery of substitute
goods -- and then argue with the
(non-achievement) of the requirement of Article 46 (2), i.e., the threshold of
"fundamental breach". To fill the gap, I would therefore propose that, in
respect of a demand for cure, the service-obligated seller can only invoke
unreasonableness as regulated in Article 46(3).

cc) Avoidance of the contract?

The threshold for avoidance of
a contract because of non-conformity is known to be high, and German rulings on
the CISG, in particular, have required extremely high standards for a
fundamental breach on account of defects.[36]
According to the prevailing opinion, this threshold can also not be lowered by
employing the technique of setting an additional period of time, i.e., by
setting in vain a deadline for redressing the defects. This must also apply to
malperformed services. The, at first glance surprising, difference from the
case of complete non-performance of services, for which the application of the
extended-deadline-rule was advocated, ought to be almost always minimal in
practice -- unless the purchaser wants to "back out" of the entire contract,
and, therefore, intends as a first step to avoid the services part. If only the
service part of the contract is at stake, the damages which can be claimed in
terms of Articles 74 or 75 are always the cost of the external services
required to cure the defective or non-rendered services. The fact that, in most
cases, the buyer remains referred to these damages, is in accordance with the
fundamental solution in cases in which the condition of the goods does not
conform to the terms of the contract.

5. EXAMPLE THREE: RIGHT OF RETENTION; e.g. BUYER'S RIGHT TO REFUSE PAYMENT

a) Gap-filling

If the buyer has received goods or
documents which do not comply with the terms of the contract, the question
arises whether, besides the regular legal remedies, the buyer can, at least
temporarily and until he has determined his next course of action, refuse payment
and perhaps even suspend his obligation to take delivery; a bank providing a
letter of credit would even subject itself to a claim for damages by its client
were it to make payment on presentation of a non-conforming, perhaps an
"unclean" document indicating that the goods have been damaged, etc. Rights of
retention are also -- as mentioned above -- to be considered when supplementary
work or services, which, according to Article 3(2) are governed by the CISG,
are not rendered, or not in in conformity with the terms of the contract.

b) Proposals

The literature predominantly
affirms that if a gap exists it can be filled in conformity with a general
principle of the CISG, as a basis for which, in particular, Articles 58 and 71
of the CISG are invoked.[37] The corresponding proposals are, however, often somewhat vague 38]
and not concrete enough to be applied in practice; how difficult the details
are is shown by an impressive attempt, published a year ago, to review this
question.[39] That shall
not be repeated here, yet various individual problems relating to the
development of a general right of retention as under § 273 BGB [German Civil
Code] should be dealt with, as should the question whether its development can
at least to a certain extent answer a further point of criticism raised by our
Anglo-Saxon colleagues regarding the usefulness of the CISG.

The embodiment of a
relevant principle in the CISG is easy to determine: Not only the principle of
payment against delivery as concurrent conditions (do ut des or tit-for-tat) in Article 58 and the "defense of uncertainty" established in
Article 71 are based on the principle that one can retain one's own performance
when the other party is tardy -- in the broadest sense -- but also Article 81(2),
sentence two (concurrent restitution after avoidance of the contract), and the
special rights of retention regulated in Articles 85, sentence two, and 86(2),
sentence two, allow a recognition of this principle. It is questionable,
however, whether its framework is precise enough to enable the derivation of a
general rule therefrom. Therefore, it is necessary to examine, firstly, the
prerequisites of retention in detail, then the manner of invoking this defense
and finally its consequences.

aa) Prerequisites

In so far as any opinions
regarding the prerequisites for a general principle of retention are to be
found, it is presupposed that only rights arising under the Convention are
being dealt with, more exactly, rights which arise from obligations created by
a contract governed by the CISG.[40]
In addition to the obligations regulated by the CISG, obligations which the
parties have autonomously established on the basis of Article 6 must also be
included; thus, the already mentioned obligations to keep in stock and to
deliver spare parts, and also other additional obligations arising, e.g., from
non-competition agreements -- in so far as they are admissible -- such as
distribution commitments, etc, are covered and allow, in case of their
non-performance, withholding of the obligor's performance.[41]

Tort claims, and in my
opinion also claims arising from other contracts are ruled out as a basis for
retention. A uniform rule can carry no weight for claims arising either from
contracts which are governed by domestic law, or from tort, and the enforcement of such claims through
retention of one's own performance due under the CISG.

bb) Defense or objection

It is technically unclear
whether a defense or an objection is being
dealt with, i.e., whether the defense must be raised or is ex officio considered. Despite the arrangement of reciprocal
obligations in Article 58(1) as concurrent conditions, in my opinion, the
defense that the other party is tardy must be raised by the debtor. Therefore,
in our (Germanic) terminology this is a defense ("Einrede").[42]
This must all the more be the case for a general right of retention --
independent of the procedural and enforcement provisions on the raising of defenses and the corresponding
divergence in the national laws; it is hardly conceivable that an Anglo-Saxon
judge could ex officio consider a
right of the defendant to withhold performance. In fact, the practical
enforcement of the right of retention is often closely intertwined with
procedural rules of the lex fori, as
is shown by § 274 BGB [German Civil Code], and, therefore, is not accessible to
unification by gap-filling.[43]

cc) Consequences

It has been often pointed out
that a gap-filling right to withhold performance thus "implanted" into the CISG
can have no real consequences, i.e., giving priority over other creditors or
similar privileges like a security interest.[44]
This must be respected. However, it should be considered whether the seller,
who retains (part of) the goods, because the buyer is in default with some
ancillary obligation, may be entitled to a self-help sale in accordance with
Article 88.[45]

c) The buyer's right of
retention when there is a tender of non-conforming goods or documents as a functional equivalent to the so-called "perfect tender" rule?

An important point of criticism of
the CISG on the part of our Anglo-Saxon colleagues is the absence of a perfect tender rule, i.e., the right of
the buyer to reject defective goods, in the words of § 2-601(a) UCC: "... if the
goods or the tender of delivery fail in any respect to conform to the contract,
the buyer may reject the whole ...". Although the words (if the buyer exercises the right under the contract or
this Convention) "to reject [the goods]" have slipped into Article 86(2) of the CISG (at the same time he
must see to their preservation and may have to take possession), a true general
right of rejection of defective goods is out of the question.[46]
The buyer must, according to predominant opinion, at first take over the goods,
and whether he may return them depends on the -- as mentioned -- extremely high
threshold for a fundamental breach by delivery of non-conforming goods. However,
a decisive difference between the meaning of acceptance according to -- e.g., English -- Law and the taking of
delivery of the goods according to the CISG must be highlighted: Whereas, according to English Law, the buyer
may no longer reject the contract by reason of acceptance, i.e., he can no longer treat the contract as discharged after acceptance,[47]
under the CISG taking delivery does not mean that the right of avoiding the contract has been lost. The
right, based on the perfect tender rule,
to reject goods which do not comply with the terms of a contract, thus
preserves the buyer's right to cancel the contract, which would be lost through
acceptance. In respect of a contract
governed by the CISG, however, this right remains available to the buyer even
after taking delivery of the goods; it does not amount to "acceptance as
performance".

Nevertheless, that the
buyer must take over defective goods, must be repugnant to the Anglo-Saxon
legal convictions.[48]
The same appears to apply to the document trading discussed above: According to
the CISG, the buyer would also have to "accept" documents which do not conform
to the contract, such as "unclean" documents.[49]
This would contradict every business practice. Can the right of retention
sketched out here avoid or lessen such unacceptable consequences for the buyer?
For rights of retention on the part of a buyer who has been tendered
non-conforming goods or documents, it must, in my opinion, be differentiated:

aa) Withholding of the purchase price

A right of retention
allows, in the first instance, to withhold payment of the purchase price until a decision regarding the legal remedy which the purchaser can and wishes to apply because of the non-conformity of the goods or documents.[50]
Of course, the retention of the purchase price must correspond with the
disadvantage caused by the non-conformity, i.e., be limited to a part of the
purchase price, in so far as the threshold of fundamental breach, allowing
complete avoidance of the contract, has not been reached;[51]
in the case of non-conforming documents, e.g., unclean documents, which can
hardly be of any use at all for the buyer, this would certainly be the norm
(see further the following), in particularly when, expressly or implicitly, "time is of the essence" for correct
tender. The exercise of the right of retention does not avoid the contract, but
leaves it suspended, and it allows, in particular, the seller -- within the
framework of Article 48 -- a second tender. If the withholding was unfounded,
however, the seller may treat it as a repudiation of the contract by the buyer.

bb) Refusal to take delivery of non-conforming goods

The exercise of a right of
retention -- as a right to suspend the performance of one's own obligation --,
can be opposed to the claim of the seller, who is physically tendering the
goods, to take delivery. In that case too, the contract remains at first
unaffected and the seller can vindicate it through a second tender within the
framework of Article 48. Generally, however, since in the natural course of
events this refusal to take delivery, in so far as a divisible delivery is not
involved, can only be exercised in respect of the entire delivery, such a
"full" rejection would contradict the fundamental idea behind Articles
49(1)(a), 46(2) in connection with Article 25, namely that in the case of
non-conformity of the goods the buyer should in general have to accept delivery
of the goods and is restricted to claim damages or price reduction only. Yet,
compatible with this fundamental idea should be that buyer can refuse to take
delivery for a certain period of time, i.e., the time which he reasonably needs
to assess the situation and to decide whether he can avoid the contract, demand
substitute delivery, or whether he must resort to another legal remedy. Should
he choose repair, this refusal to take delivery should at least be possible
until the repair has been made or until the expiry of a deadline set for such a
cure. The obligations of preservation contained in Article 86(1), (2) remain
unaffected by the right to temporarily refuse acceptance: The buyer must, if
necessary, take the goods and store them: He has to receive and perhaps take
possession, but he need not take
delivery in the sense of "acceptance". Article 69(1) is then applicable for
the passing of risk, i.e., only in the case of a justified exercise of the
right of retention does the risk not pass to the buyer,[52]
insofar as the exceptions of Articles 66 or 70 are not applicable anyway.

cc) Refusal to take up non-conforming documents

In the case of documents which
do not conform to the contract, the refusal of their acceptance exercised as a
right of retention must, at any rate in the case of "unclean" documents
indicating perhaps damage to the goods, be always allowed, as such documents
are, as a rule, of no use whatsoever for the buyer and their tender alone often
constitutes a fundamental breach of the contract.[53]
As long as the buyer has not avoided or cannot avoid the contract, the seller
still has the possibility of a second tender of missing or non-conforming
documents. The right to reject non-conforming documents is advocated in the
literature, as a final refusal, however, only in the case where the buyer
simultaneously declares avoidance of the contract (because of a fundamental
breach).[54] However, a declaration of avoidance, if
effective, should bring the contract to a final end and thereby also cut off
the seller's right to a second tender. INCOTERMS oblige the buyer to take up --
e.g. -- transport documents, only when they fully conform to the contract,[55]
and one would have to consider whether an international usage in terms of
Article 9(2), i.e., implicitly agreed, has not in this respect already come
into existence.[56] At all
events, the particularities of document trading must be taken into account in
the interpretation of Article 25 and the threshold for the avoidance of the
contract as a result of non-conformity of the documents tendered -- and thereby
also for the right to reject them -- should be lower than in the case of defects
in the goods themselves.[57]

Should the buyer have to
furnish a letter of credit, then an agreed perfect
tender rule applies practically to the documents to be tendered, in any
case. The agreement in the contract of sale that the buyer is to furnish a
letter of credit, must be read as an implied reference to and, thereby, an
incorporation of the terms [58]
to be agreed between the buyer and the issuing bank in favor of the
seller/beneficiary, so that the provision established therein, that payment is
only to be made against fully conforming documents -- strict compliance -- contains a party-autonomous agreed right of
rejection.[59] In regard
to these forms of international documentary sales transaction, what the critics
find lacking in the CISG is in fact created by agreement of the parties: the
taking up of documents and payment of a letter of credit can be refused always
when the documents do not conform 100% with the contract.

Summary. The ideas which have been tentatively introduced here may not offer a
completely satisfying substitute for a perfect
tender rule in circumstances in which such a rule is regarded as
appropriate, but perhaps provide a bridge to the Anglo-Saxon sense of justice
which -- understandably -- balks against obliging buyers to accept defective
goods or to take up non-conforming documents. It would be a solution which
"would fall somewhere between fundamental breach and perfect tender ...".[60]

FINAL REMARKS

You will have gained the
impression, that the CISG is still a construction site. This impression is
correct. It is necessary to investigate whether we have the appropriate tools
and building plans for further construction and development. I believed that I
have been able here, by means of some examples, to provide an affirmative
answer to that question.

The author Peter Schlechtriem, Dr. jur. (U. of Freiburg), Dr. h.c. (U. of Basel), Dr. h.c. (U. of Tartu), M.C.L. (U. of Chicago) is Professor Emeritus of the University of Freiburg, Germany, and is at present Head of the Center of Research on the Unification of the European Law of Obligations at the University of Freiburg.

** The author thanks Martin Koehler for having provided a first translation. He is deeply indebted to his colleague Professor Albert H. Kritzer, Pace University School of Law, N.Y., for his continuous, patient review of the various draft translations and for his many helpful suggestions and proposals in regard to the subject matter of the topics dealt with in this article.

8. Cf. Rabel , op. cit. (previous footnote), Vol. 1, p. 38 et seq., who takes into account the already mentioned special characteristics of the trade in commodities by means of documents, that are said to stand in the way of the unification of law -- primarily by dealing with the argument that the worldwide trade in commodities is supposed to have created its own commercial law stipulated in model forms, what was even then expressed mainly by Großmann-Doerth in his renowned "Das Recht des Überseekaufs", Mannheim-Berlin-Leipzig, 1930. It must be generally remembered here that Rabel extensively evaluated the consequences of such forms and practices to international trade in commodities and, in addition, the problems of non-conforming tender of goods or documents (see further in text) compiled and evaluated by Großmann-Doerth -- also in his monograph "Die Rechtsfolgen vertragswidriger Andienung", Marburg 1934. The discussion with the Anglo-Saxon critics of the CISG seems therefore at times to be a continuation of the dialog between Rabel and Großmann-Doerth.

11. Commentary on the Draft Convention on Contracts for the International Sale of Goods, prepared by the Secretariat, Document A/CONF.97/5, dated 14 March 1979. p. 13, para. 8 of Commentary on Article 2 [Exclusions from Convention].

19. For the reasons for this scarcity in the CISG, see Honnold, Uniform Law for International Sales, Kluwer Law International, 3d ed. 1999, margin note 219: "The first sentence of the present article was included to provide a simpler and less cluttered text" instead of "many references to delivery by documents".

22. An excellent treatment is, however, offered by the commentary of Witz/Salger/Lorenz, International Einheitliches Kaufrecht, Verlag Recht und Wirtschaft, Heidelberg 2000; in contrast, however, some commentaries do not even contain any reference to document trading in the index.

24. These questions are, however, addressed in the treatment of the problem whether the buyer must object by notice of lack of conformity, cf. thereto Staudinger/Magnus, Article 34 margin note 18; Schlechtriem/ Schwenzer/Huber/Widmer, op. cit. (fn. 20) Article 34 margin note 5 -- in my opinion, a reference here to an analogous application of Articles 38, 39 does not suffice; instead the object of the -- breached -- seller's obligation should have been more exactly specified.

26. Cf. Convention on Agency in the International Sale of Goods dated 8 February 1983 (Geneva), Article 6(1); UNIDROIT Convention on International Factoring dated 28 May 1988 (Ottawa), Article 6(1); UNIDROIT Convention on International Financial Leasing dated 20 May 1988 (Ottawa), Article 6(1); UN Convention on the Assignment of Receivables in International Trade, dated 12 December 2001, Article 7(1); see further UNIDROIT -- Principles of International Commercial Contracts, 2004, Article 1.6.

27. For an example of an interpretation that fails to detach itself from national preconceptions of terms applied, see the use of domestic case law -- case law under UCC § 2-615 -- to interpret Article 79 of the CISG in Raw Materials Inc. v. Manfred Forberich GmbH & Co. KG, 2004 U.S. Dist. LEXIS 12510, 2004 WL 1535839 (N.D.Ill), available on the Internet at <http://cisgw3.law.pace.edu/cases/040706u1.html>.

28. To the question whether this formula corresponds with the German legal principle of "Treu und Glauben", and whether it is only a matter of a principle for the interpretation of the Convention, or a directive for the interpretation of the contractual relationship between the parties, cf. my commentary in Schlechtriem/Schwenzer, Commentary on the UN Convention on the International Sale of Goods, Clarendon Press, 2d ed. Oxford 2005, Article 7, Rn: 17 et seq. (to be published in 2005).

38. Cf., e.g., Schlechtriem/Schwenzer/Ferrari (fn. 20), Article 4, margin note 45a: "... as these provisions (i.e., Articles 58(1) and 71(1)) appear to embody a general principle (?), it must be presumed that all national provisions in this regard (i.e., to retention rights) are superseded, Article 7 para. (2) ..." (the bracketed insertions made by this author).

46. According to the commentaries literature, the rejection refers to the cases of Article 52(1) and (2) (refusal of a premature or a partial delivery), to the case of the defense of uncertainty in Article 71 and to the cases of fundamental breach allowing avoidance, and a demand for substitute goods under Article 46(2), Schlechtriem/Schwenzer/Hornung, Article 86 margin note 5.

47. Cf. Mullis, op. cit. (fn. 2), p. 332; the author makes use of the term, "to treat the contract as discharged", synonymously with termination of the contract by the buyer, see fn. 38; see too McNamara, op. cit. (fn.1), p. 17. Regarding "acceptance as conforming performance" in this context in the German legal system, see Großmann-Doerth, Vertragswidrige Andienung (fn. 8 above), p. 130 et seq.

49. On this point of criticism, see in particular, Mullis, op. cit. (fn. 2), p. 346 with a reference to The Hansa Nord, (1976) Q.B. 44, where the deciding judge Roskill L.J. defined and implemented the seller's obligations in respect of the documents as "sacrosanct": "Any breach justifies rejection"; see too Bridge, op. cit. (fn. 4) margin note 3.24.

50. Cf. For withholding of the purchase price by non-compliance of the goods, Witz/Salger/Lorenz/Witz, Articles 58-59 margin note 12 with a reference to Article 58(3) (the buyer can "certainly ensure the compliance of the goods"); to retention after acceptance the same in retention rights (fn. 39), p. 305 et seq.

56. Cf. for the ICC CIF clause as international trading custom, the American case of St. Paul Guardian Insurance, above fn. 12.

57. Should the goods be tendered in a physically damaged state and should certain, additionally required documents be non-conforming, such as in the case in the German Federal Supreme Court (BGH) ruling dated 3 April 1996, cisg-online 135 = NJW 1996, 2364, then for every partial performance is Article 51(1), and for avoidance of the entire contract, paragraph (2) to be applied analogously (gap-filling), (to this Mullis, op. cit. (fn. 2) in fn. 97).

58. Cf. Witz, op. cit. (fn. 22) Article 60 margin note 13: Conditions for acceptance of the documents according to fig. 22 et seq. ERA are applicable in accordance with Articles 8, 9 CISG also between the contracting parties of the contract of sale.

59. For details see MünchKom/Nielsen, Handelsgesetzbuch vol. 5, C.H. Beck, München 2001, p. 977 et seq., margin note H 104 et seq.; as an introduction, Guide to ICC Export-Import Basics, 2nd ed. 2003, p. 182 et seq., 196 et seq. Here too, the refusal to take up the documents is, in the first instance, merely an exercise of the right of retention and, as long as avoidance is not declared, can be overcome by the tender of contract conforming documents.

60.Bridge, op. cit. (fn. 4 above) for his own similar solution based on Article 71.